HP: 27,000 job cuts by 2014, Mike Lynch to leave (NEW UPDATE)

HP has confirmed that it plans to shed 27,000 jobs by 2014, eight per cent of its global workforce, in what it called a "productivity initiative".

Some 1,600 jobs out of a total of 20,000 in the UK may be under threat, according to the union Unite, suggesting that HP plans to cut eight per cent in each territory. Unite national officer Kevin O'Gallagher described the cuts as a "devasting blow to the technology industry in the UK".

CEO Meg Whitman (pictured) said that the company plans to achieve up to $3.5bn (£2.2bn) annual cost savings globally by the end of 2014. The money will be reinvested back into the restructured business.

The cuts overshadowed HP's latest quarterly results which, though far from spectacular, were better than expected, causing shares to rise nearly six per cent on the day.

Q2 profits were down just over 30 per cent year on year to $1.6bn (£1bn), on revenues of $30.6bn (£19.5bn), beating expectations. Revenues were down by three per cent.

HP's Q2 PC sales were flat, but better than Dell's, which also reported this week. Enterprise hardware declined by six per cent, but software saw an increase of 22 per cent against the same quarter last year. Autonomy licence revenue fell, however.

One casualty is to be Autonomy founder Mike Lynch. The big data analytics company had continued to operate as a separate business unit under his control since being acquired by HP for $10.3bn (£6.5bn) last year.

Lynch was honoured at last year's Computing/BCS UK IT Industry Awards for his outstanding contribution to UK IT. His loss, if pursued, seems extraordinary, as big data – and mining it for enterprise information – moves to the top of the IT leadership agenda.

"Mike Lynch’s departure from HP seems counter-intuitive in light of the company’s intention to reinvest in R&D following its planned layoffs," said Tim Jennings, chief IT analyst at Ovum. "Lynch is a technology visionary, and parting company on the basis of poor sales execution in the division, indicates that HP has struggled to create a clear vision for how to leverage its expensive acquisition.

"HP would have been better advised to utilise Lynch’s talent across all of its software business, rather than to allow him to remain at arm’s length, and subsequently land him with the blame for poor sales execution."

HP's printer revenues declined by 10 per cent against Q2 2011, after a year-on-year decline of seven per cent in Q1.

Whitman – HP's third CEO in three years – said: "This quarter we exceeded our previously provided outlook [by $770m (£490m)] and are executing against our strategy, but we still have a lot of work to do."

The message is clear: mobile is everything and commodity hardware is less and less profitable for any company that lacks the consumer design cachet of an Apple or a Samsung – or an Amazon. For the enterprise, big data analytics, on-demand platforms and the datacentres they run on are king, as are bespoke services.

In each case, HP has failed to convince that it has the leading solutions – despite its respectable R&D culture and IP treasure chest. Ultrabooks are an obvious opportunity for a company steeped in hardware.

But despite being the biggest PC maker, HP is "the other company" in enterprise terms; the company that isn't IBM or Oracle – or even SAP, with its emerging cloud focus. Nor is it Apple, Samsung, or Google. In each case, customers know exactly what those companies stand for. Microsoft, meanwhile, still has its massive installed base and has understood the cloud well enough to thrive in it.

Whitman's predecessor, Leo Apotheker, was the wrong man (too strange, too European) with the right idea, but went too far too quickly by planning to spin off HP's PC division. Whitman nixed that decision and saved HP's all-American garage heritage, but the challenge of establishing a convincing software and services focus remains.

Under her leadership, HP's real challenge is to tell the industry who it is in a world where beige no longer cuts it. She has proved that she can carry investors with her. Now the former eBay chief needs to sell a vision of products, services – and the customer.

Her strong track record at eBay is in doing exactly that. The question may be whether her fellow executives will let her do it.

Sometimes, the power of the mainframe is the most cost effective answer. Computing's Peter Gothard puts Computing's readers' questions on the future of the mainframe to IBM's Z13 expert Steven Dickens.